How a Tier-2 Auto Manufacturer Became an OEM Supplier

Updated On: 06 Feb 2025

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Introduction

The automotive industry operates on a structured supply chain where manufacturers and suppliers are classified into different tiers. While Tier-2 automotive suppliers provide parts to Tier-1 manufacturers, becoming a direct OEM (Original Equipment Manufacturer) supplier is a significant leap. This transition requires strategic planning, technological upgrades, and compliance with strict quality standards.

In this blog, we’ll explore how a Tier-2 auto manufacturer successfully became an OEM supplier, breaking down the key steps involved in the transformation.

Understanding the Automotive Supply Chain

The automotive supply chain is categorized into different tiers based on supplier roles:

Tier-1 Suppliers – Directly supply components to OEMs, often designing and assembling major automotive parts.
Tier-2 Suppliers – Provide raw materials, components, and sub-assemblies to Tier-1 suppliers.
OEMs (Original Equipment Manufacturers) – Automakers that assemble and market vehicles.

For a Tier-2 manufacturer, supplying directly to an OEM means overcoming multiple hurdles, from meeting industry standards to scaling production.

Challenges Faced by Tier-2 Suppliers

Transitioning from a Tier-2 supplier to an OEM supplier is challenging due to:

✅ Limited Direct Access to OEMs:
Most Tier-2 manufacturers rely on Tier-1 suppliers for contracts, making it difficult to establish direct relationships with automakers.

✅ Stringent OEM Requirements:
OEMs demand strict quality compliance, on-time delivery, and adherence to global industry standards such as IATF 16949.

✅ High Cost of Upgrades:
Meeting OEM standards often requires investment in automation, precision engineering, and advanced manufacturing processes.

✅ Competitive Market:
The automotive industry is fiercely competitive, with several Tier-1 and Tier-2 suppliers competing for contracts.

✅ Financial Constraints:
Scaling operations, upgrading technology, and securing certifications require substantial financial resources. Tier-2 suppliers often face:

Cash Flow Challenges: Balancing day-to-day operations with investment in growth initiatives.
High Capital Investment: The need for advanced machinery, R&D, and compliance costs.
Limited Access to Credit: Difficulty securing traditional loans due to stringent eligibility criteria.

💡 How Oxyzo Can Help:

For Tier-2 suppliers looking to overcome financial barriers, Oxyzo offers tailored financing solutions designed to support growth in the automotive industry:

Working Capital Loans: Ensure smooth operations without cash flow disruptions.
Equipment Financing: Fund the purchase of advanced machinery and technology upgrades.
Vendor Financing: Strengthen supply chain partnerships and secure bulk orders with ease.
Quick Disbursals: Get fast approvals and disbursements to capitalize on growth opportunities without delays.

With Oxyzo’s flexible financial products for Auto industry, Tier-2 suppliers can focus on scaling operations, meeting OEM standards, and expanding their business without worrying about financial constraints.

How They Became an OEM Supplier

Here’s a step-by-step breakdown of how a Tier-2 auto manufacturer successfully became an OEM supplier:

1. Identifying Market Opportunities

Conducted market research to find gaps in the supply chain.
Assessed OEM procurement needs for specific automotive parts.
Focused on niche components with lower competition but high demand.

2. Investing in Advanced Technology

Upgraded manufacturing units with automation, robotics, and AI-driven quality control.
Adopted precision engineering tools to enhance product quality.
Optimized production to reduce defects and enhance scalability.

3. Meeting OEM Standards & Certifications

Obtained ISO 9001 & IATF 16949 certification to comply with global automotive quality standards.
Implemented lean manufacturing principles to improve efficiency.
Developed a rigorous quality control system to meet OEM specifications.

4. Building Direct Relationships with OEMs & Tier-1 Suppliers

Attended auto industry expos and trade fairs to showcase expertise.
Partnered with Tier-1 suppliers to secure referrals and credibility.
Negotiated long-term supply contracts directly with OEM procurement teams.

5. Scaling Operations & Workforce

Expanded production facilities to handle larger orders.
Hired skilled engineers and technicians to improve manufacturing capabilities.
Implemented just-in-time (JIT) inventory management for cost efficiency.

By following this strategic roadmap, the company successfully transitioned from a Tier-2 manufacturer to a direct OEM supplier, unlocking new growth opportunities.

Benefits of Becoming an OEM Supplier

Transitioning from a Tier-2 supplier to an OEM supplier brings significant advantages:

🚀 Higher Revenue Potential – Direct contracts with OEMs offer larger and more consistent order volumes.

🌟 Improved Industry Reputation – Being an OEM supplier builds credibility, attracting new clients and investors.

🔧 Increased Product Innovation – Working with OEMs allows greater involvement in R&D and design improvements.

🌎 Access to Global Markets – Many OEM suppliers expand internationally, boosting their market presence.

New Opportunities and Growing Market Trends

The automotive industry is rapidly evolving, creating new opportunities for OEM suppliers:

Electric Vehicles (EVs): The shift towards EVs is driving demand for new components like battery packs, electric drivetrains, and lightweight materials.
Smart & Connected Cars: The rise of IoT and autonomous technologies offers OEM suppliers a chance to provide advanced electronic systems and sensors.
Sustainability Trends: Growing focus on sustainable manufacturing and eco-friendly materials is opening doors for suppliers specializing in green technologies.
Global Expansion: Emerging markets in Asia, Africa, and South America are creating new avenues for OEM suppliers to tap into high-growth regions.

To understand more on opportunity in Auto industry read our blog on: Automobile Industry in India: Trends and Growth Opportunities

Conclusion

The journey from a Tier-2 supplier to an OEM supplier requires strategic planning, investments in technology, and adherence to strict quality standards. By identifying market opportunities, upgrading manufacturing capabilities, obtaining necessary certifications, and building strong industry relationships, a Tier-2 auto manufacturer can successfully secure direct contracts with OEMs.

For automotive suppliers looking to scale their business, following this roadmap to OEM success can pave the way for sustainable growth and industry leadership.

FAQs

Q1: How long does it take for a Tier-2 supplier to become an OEM supplier?
It varies, but with the right strategy, it can take 2-5 years to establish direct OEM contracts.

Q2: What are the top certifications needed to become an OEM supplier?
The most crucial certifications are ISO 9001, IATF 16949, and Six Sigma compliance.

Q3: What are the biggest challenges when transitioning to an OEM supplier?
Meeting OEM quality standards, securing contracts, handling large-scale production, and managing financial constraints are the key challenges.